Does Green Tech Give Green Returns?
Think of the world leaders in renewable energy and the last nation to appear on the list will likely be China. The famous coal-burning, oil-guzzling industrial nation has pollution that can be seen from space and contributes to the death of 1 million Chinese per year. Yet no nation invests more money in solar, wind, and water power than China even if they use fossil fuel for 98% of their energy needs. That's why last week's sell-off of major Chinese solar panel producing companies, like Guggenheim Solar (TAN on the London Stock Exchange trading for $44.27 a share) and Hanergy Thin Film Power (0566 on the Hong Kong Stock Exchange trading for $3.91 a share) created such surprise and unease in the green-tech market. With several Chinese solar companies on the rocks, it's worth asking whether or not the leading eco-friendly stocks have resulted in accumulation of a different kind of green -- the kind with pictures of dead presidents on it -- or whether they've underperformed during the current fad.
The correlation between the performance of solar stocks and the month of the year shouldn't be too surprising, given that most customers purchase solar panels to set up during the spring and summer months when they can capitalize on more sunlight and longer daylight hours. Even so, the predictability with which leading companies like First Solar (FSLR on the New York Stock Exchange, trading for $55.07 a share) makes them the closest thing to a steal in a portfolio. While the company reached peak value five years ago when the US government issued the most prolific renewable-energy tax credits, their performance since then has steadily followed the amount of sunny hours in any given day. Unsurprisingly, First Solar's best month of 2015 has been May while their worst month has been January, a trend that echoes their 2014, 2013, and 2012 performance. In the case of solar power, the investment takeaway is refreshingly simple: consider buying solar stocks whenever you have to break out the snowblower, then sell them as soon as you trade in the snowblower for a new lawnmower.
It's unfortunately too late to go back in time and invest in Tesla Motors (TSLA on the New York Stock Exchange, trading for $247.73 per share) at around 2013, when you could have quadrupled your money in the span of only four years. That doesn't mean it's a mistake to invest in the company today, however. Tesla has a corporate ambition that is unmatched in the green energy sector, rivaling the biggest fish in the pond like Google and ExxonMobile. You've likely seen or heard about their gregarious CEO Elon Musk, who wants to do everything from put electric cars in American garages to launching a space colony on Mars. The value of Tesla is twofold: first and foremost, there are no major competitors choking out their potential, especially now that Fisker Automotive has gone bankrupt. Second, their track record speaks for itself. No other green start-up company has raised as much money and gone public as quickly while maintaining as large a market share, especially as Pitchbook reports that venture capital funding for green tech has dropped by about 60% in the past two years. Ironically, Tesla lost a lot of value at the same time that oil dropped by about 50% during 2014 and the first months of 2015. Since March, however, their stock price has appreciated by nearly 40%. With sales of their flagship Model S electric cars taking off, they're a good bet for growth in the long-term.
In a similar vein as Tesla Motors, those who held shares of Ormat Technologies (ORA on the New York Stock Exchange, trading for $37.64 a share) during February of 2015 would have seen their money double if they decided to cash out today. Some green energy companies only see a bump in customer spending during the winter months as homeowners receive egregious utility bills. The advantage of geothermal companies, unlike their solar colleagues or competitors, lies in the year-round advantage of the utilities. Since geothermal water loops will cool down a building in summer while warming it up during the winter, there's no "buy" or "sell" season. Such an evergreen business model has meant good things for Ormat, who positively exploded during February and March after slugging through a pedestrian 2014 fiscal year without much improvement. Ormat offers the potential for rapid growth in the short term and steady performance in the long term as they've leapfrogged their largest competitor Calpine Corporation (CPN on the New York Stock Exchange, trading for $20.71 a share) to enjoy the largest market share in the United States.
The massive difficulties in manufacturing and shipping huge wind turbines makes it nearly impossible to directly invest your money in a company that has no other diversified operations. Yet take a drive in the Illinois countryside around Chicago, where tens of thousands of 100-foot-tall turbines power a city of 3 million, and it's clear how much money can be made for companies with operations to scale. One such leader is the German power firm Siemens (SIE on the Frankfurt Stock Exchange, trading for $98.15 a share) who owns wind turbine producers like the Midwest startup company Elgin Energy. While January proved a poor month for Siemens' wind power, with the company seeing their turbine orders fall by over 40%, their stock hasn't taken a hit, having gained 10% in 2015, 20% growth since October of 2014, and 50% growth since June of 2012. Siemens represents such a large company that it's difficult to invest tactically for short-term gain: rather, consider them a strategic asset in a portfolio similar to an American company like General Electric, which will certainly retain value in the long run.